Medicare Levy Reduction Calculator

If your taxable income is below certain thresholds, you may pay a reduced Medicare levy — or none at all. The ATO's "shade-in" mechanism means low-income earners pay 10 cents per dollar above the lower threshold rather than the full 2%, giving a gradual phase-in to the standard rate.

Medicare levy shade-in thresholds 2025-26

The shade-in thresholds determine whether you pay no levy, a reduced levy, or the full 2% Medicare levy. There are separate thresholds for singles, couples or families, and seniors (SAPTO-eligible individuals).

For couples and families, add $4,216 to the lower threshold and $5,270 to the upper threshold for each dependent child (ATO M1 instructions).

How the shade-in reduction works

The shade-in formula prevents a "tax cliff" where earning one extra dollar suddenly triggers a large levy bill. Here's how it works in practice:

• Below the lower threshold: no Medicare levy is payable.
• In the shade-in range: you pay 10% of the amount your income exceeds the lower threshold. For example, a single person earning $30,000 in 2025-26 pays 10% × ($30,000 − $27,222) = $277.80.
• Above the upper threshold: the full 2% levy applies to your entire taxable income.

The 10 cents-per-dollar rate in the shade-in range is designed so that at the upper threshold, the shade-in levy equals exactly 2% of income — ensuring a smooth transition to the standard rate.

Family threshold adjustment

For couples and families, each dependent child (including adopted children and dependants under 21 in your care) adds $1,500 to both the lower and upper thresholds. This adjustment applies to both the standard couple thresholds and the senior couple thresholds.

For example, a couple with 3 dependent children has a lower threshold of $45,907 + (3 × $4,216) = $58,555 and an upper threshold of $57,383 + (3 × $5,270) = $73,193.

Who is exempt from Medicare levy?

The low-income reduction described above is separate from full Medicare levy exemptions. You may be fully exempt from the Medicare levy (regardless of income) if you are:

• A foreign resident for Australian tax purposes
• Eligible for a Medicare levy exemption due to certain medical conditions (as certified by the ATO)
• A temporary visa holder who is not entitled to Medicare benefits
• Covered by a Ministerial exemption order

If you believe a full exemption applies to you, speak with a registered tax agent — this calculator only models the low-income shade-in reduction, not full exemptions.